The global payments industry is preparing to enter a new era of richer data and more detailed payment context with SWIFT’s adoption of ISO 20022 standards – a global and open messaging language for payments. ISO 20022 is set to come into full effect in November 2025, across banks, clearing infrastructures and intermediaries. While the adoption of ISO 20022 for cross-border payments is set to create a common standard for payment data across the globe, implementation is likely to have differing implications for corporates and financial institutions alike.
According to Shirish Wadivkar, Global Head, Correspondent Banking Products, there will be costs associated with the implementation of ISO 20022, but the benefits are wide ranging – and if banks were to limit the project to just minimum standards of compliance, they will remain oblivious to the potential that ISO 20022 has to truly transform the payment experience for all participants in the payment ecosystem. “We will miss this opportunity if we classify ISO 20022 as just a bank-to-bank, correspondent banking project,” he says. “Under the current system manual intervention and regulatory reviews adds to the cost of the payments, and detracts from the speed and efficiency, that we can truly offer our clients. The adoption of ISO 20022 will expand on what is missed in the existing MT messages.”
Currently, SWIFT estimates that 10% of payments over the SWIFT network require manual intervention. Many large market infrastructures (like the local RTGS and immediate payment networks) across the world are moving towards ISO 20022 in lockstep of the SWIFT migration to ISO 20022 by 2025. “When banks, clients and market infrastructures transact using ISO 20022, the data standardisation and uniformity throughout the banking ecosystem, creates a transformative impact for all,” says Wadivkar. “These are the new rails for commerce to move faster, better and stronger.”
Why ISO 20022 and why now?
Indeed, the overarching benefits of implementing ISO 20022 are compelling when compared to the fragmented systems currently being used. “Consistency in reporting is a common issue for corporates. Collecting money is easy but reconciling it is much harder” says Ankur Kanwar, Regional Head of Cash Management Products, Singapore & ASEAN.
ISO 20022 will address this issue according to Saqib Sheikh, Global Head of the SWIFT ISO 20022 Programme. “Corporates want a single, rich data standard and a uniform experience across banks that they deal with and ISO 20022 facilitates just that, at a minimum.”
SWIFT has spent the past three years working with industry working groups to ensure that the ISO 20022 cross-border payments market practice will address current limitation. This means improvements not only to reconciliation, but also to visibility and tracking, automation, efficiency and of course, improvements to data capture. “Clients are demanding more structured data, quality data, something that is meaningful for them,” says Sheikh. “ISO 20022 provides better data and hence better payments.”
And it is not just clients who are set to benefit from ISO 20022, regulators globally also want more data about transactions occurring in their jurisdictions, to facilitate visibility of the nature of payments. “If you are looking from a compliance lens and are looking for bad actors in the payments stream, this rich and structured party data is very important for you to effectively screen and identify bad actors with limited false positives. ISO 20022 allows for more data with which to uniquely identify parties in the payment chain,” adds Sheikh.
As global transactions continue to increase, the need for more structured and richer standards has become more pressing, particularly as domestic payment systems in many jurisdictions have moved or have active plans to adopt ISO 20022 in the next couple of years. “Customers want to be able to receive richer remittance information or track payments in real time – ISO 20022 is an opportunity to improve efficiencies and thus improve the overall customer experience,” says Franck de Praetere, ISO Programme Director, SWIFT Asia Pacific.
Enriched and harmonised data is also key to automation says Marion Reuter, Regional Head of Transaction Banking Sales, Europe and Head of Transaction Banking, Germany and Nordics. And while a move towards ISO 20022 standard was the first step in that evolution to automation, a new element has emerged offering even more efficiency and standardisation in the payment ecosystem: Application Programming Interface – also known as API.
Corporates and Financial Institutions are keen to make the flow of information more real time, and APIs can facilitate this says Reuter. They will also offer an additional channel for reporting she says. “The system is getting more and more geared up for the automation. That only works if there is harmonisation in the entire process.”
The future is near
To ensure that all industry participants have enough time to get their systems in place for ISO 20022 SWIFT has begun the journey early and is providing a long lead time to ensure smooth adaptation.
From September 2020, all counterparties, including vendors, can start testing on a dedicated portal. Within the testing portal users will be able to generate ISO 20022 messages in back offices – and then upload to the portal to check for compatibility. By late 2021 – early 2022 testing will be available for the industry with the SWIFT transaction management platform. “There are a set of clients already on ISO formats, and from what I see they are well ahead on their journey – but there is a large population for whom this ‘aha!’ moment has not happened,” says Kanwar.
For those who have not yet started the journey towards ISO 20022 adaptation, the message is clear. “Don’t wait – it is a lengthy journey,” says de Praetere. As ISO 20022 has many touch points with back office applications and customers’ channels, the advice is to engage with vendors and banking partners now, while starting internal training and impact assessments, to pave the way for successful resourcing and testing, in time for the go-live date end of 2022.
You can find out more about the move towards ISO 20022 in our two webinars – the West version which features Saqib Sheikh, Global Head of the SWIFT ISO 20022 Programme and the East version which features Franck de Praetere, ISO Programme Director, SWIFT Asia Pacific.